DRIEBERG J.—Pune hi Appu v. Aralis Appu.
1934Present: Macdonell C.J. and Drieberg J.
PUNCHI APPU v. ARALIS APPU et al.
249—D. C. Galle, 30,987.
Paulian action—Claim by creditor in execution of his writ—Fraudulentalienation by debtor—Declaration in favour of creditors-purchaser.
A person who has purchased property at an execution sale in satis-faction of his decree is entitled to ask for a declaration that an earliertransfer by his debtor and a sale by that transferee to another are voidas being in fraud of creditors.
/l PPEAL from a judgment by the District Judge of Galle.
H. V. Perera, for third, fourth, fifth, and sixth defendants, appellant.
G. Wickremanayake, for plaintiff, respondent.
Cur. adv. vult.
November 8, 1934. Drieberg J.—
The plaintiff claims title to lot 2 on a Fiscal’s transfer of July 15, 1931.The sale was in execution of a judgment obtained by him against the firstdefendant in C. R. Galle, No. 9,531. He purchased the land for a sumin excess of his claim for which he got credit. Lot 2 had previously beenjsold by the first defendant to the sixth defendant by D 1 of April 25, 1929,and the sixth defendant sold it to the third defendant on D 2 of June 2,1931, between the dates of the execution sale and the plaintiff’s Fiscaltransfer. The defendants resisted the attempt of the Fiscal to give himpossession and the plaintiff thereupon brought this action.
37/13*5 c. w. R. 224.142
DRIEBERG J.—Punchi Appu v. Aralis Appu.
In the plaint he set out the sales to the sixth defendant and the thirddefendant and alleged, that they were executed in fraud of creditorsand that they and the first defendant had acted collusively and with theintention of defrauding him. He pleaded an estoppel based on thepresence of the first and third defendants at the sale by the Fiscal. Hedid not ask that the deeds D 1 and D 2 be declared void. The prayerwas only for declaration of title, ejectment, and damages.
Issues were framed on the averment that the deeds D 1 and D 2 wereexecuted in fraud of creditors and thereafter the sixth defendant wasadded as a necessary party. Counsel for the defendants said he wasnot prepared to meet these issues as they did not arise on the pleadingsand asked for an adjournment of the trial, which was allowed. Thelearned District Judge found that the deed D 1 was executed by thefirst defendant without consideration and with intent to defraud hiscreditors. The consideration for D 1 was Rs. 500 and he thought thatthe sixth defendant could not have had even Rs. 100 to pay for the land.The plaintiff said the sixth defendant was a cook, he did not know whathis salary was, but he could not have had Rs. 500. The first and sixthdefendants are cousins.
The finding regarding D 1 will not, however, help the plaintiff, for titlehad passed to the third defendant by D 2 and he had to prove that thistransfer D 2 was procured by the third defendant in collusion with thesixth defendant for the purpose of defeating the claim of the plaintiffas a creditor of the first defendant. The learned District Judge foundthat the third defendant was a party to the fraud ; this was on the thirdissue which was “ were the first defendant and the third defendant actingin collusion with a view to defraud the plaintiff and is the deed by thesixth defendant in favour of the third defendant void”. The considera-tion appearing in D 2 is Rs. 500, but it was not paid in the presence of thenotary. The trial Judge does not hold that there was no consideration.The finding against the third defendant is mainly on these grounds, thathe is a neighbour and also an uncle of the first defendant, that he with thefirst and sixth defendants was present at the sale by the Fiscal on May 23,1929, and that he knew at the time of the previous sale by the firstdefendant to the sixth defendant. I do not see how this last circumstancecan tell against him, for in itself it would mean merely that the plaintiffwas causing the Fiscal to sell a land of which his execution-debtor wasnot then the owner. The third defendant did not give evidence and thequestion is whether the plaintiff has made out a case against him. Thefirst defendant says the third defendant was not present at the sale,but in view of the corroborative evidence of the Police Vidahne ofMawadawila it must be taken that he was. It was not necessary for thealleged purpose of the defendants that they should have been presentat the sale. The first defendant’s presence needs no explanation. Noris there any suggestion of a fraudulent intent in the presence of the sixthdefendant. He had claimed the land on D 1 when it was seized and hisclaim was dismissed bn March 17, 1931, without an inquiry; undercircumstances which do not bar him from denying the title acquired by the
DRIEBERG J.—Punchi Appu v. Aralis Appu.
plaintiff under the Fiscal’s sale. His not easily understandable trans-actions with the plaintiff and his wife in 1929 over this land make itquite likely that he would have gone there to see what would happen atthe sale.
Mr. Perera argued that the plaintiff could not maintain this actionfor the reason that having bought the property for an amount in excessof his claim he was no longer a creditor and that it was only a creditoror the heirs of a creditor who could bring such an action. I think it isnot possible for the defendants to raise this point in appeal for the firsttime. They raised no objection to the issue regarding their fraudulentand collusive design and took time to meet it. Further, the right of acreditor who has purchased property at an execution sale in satisfactionof his decree to impeach an earlier transfer by his debtor as a fraudulentalienation is recognized, see Vallipuram v. Vallipuram' in which thedefendant, who had bought land of his debtor on a writ against him,was allowed to ask for a declaration that an earlier transfer by his debtorand a sale by that transferee to another, executed after the sale tothe defendant, be declared void as alienations made in fraud of him.-The position of the defendant in that case is identical with that of theplaintiff in this action. In Suppiah Naidu v. Meera Saibo‘, relied on byDalton J. in Vallipuram v. Vallipuram (supra), the interests of the debtorwere bought by a creditor in execution proceedings and sold by himto the plaintiff. The plaintiff was allowed to challenge, as in fraud ofcreditors, earlier transfers by the debtor to the defendants in the action.Further authority is afforded by Mohamedo v. Manupillai.*.
But when a judgment-creditor, who becomes aware during theexecution proceedings of an earlier alienation by his debtor which hedesires to impeach as fraudulent, proceeds to sell and buy the propertyhimself without first having the earlier deed set aside he creates consider-able difficulty for himself. The plaintiff admits that before his purchasehe knew of the transfer D 1. In fact, he knew of it a long time before.For some reason which is not easy to see the plaintiff procured a transferD 3 of September 6, 1929,. in favour of his wife from the first defendantof a half of lot 2a and the whole of lot 2. The plaintiff said the firstdefendant owed his wife Rs. 300 but it was in fact his money which shelent to the first defendant. He valued lot 2 in his plaint at Rs. 503and he finally valued the half of lot 2a at Rs. 75 though he previouslysaid the whole of lot 2a was worth Rs. 600. In the preparation of D 3he instructed the notary not to search for encumbrances. It is not easyto see any reason for this but that he did not wish to be affected withknowledge of D 1 which the first defendant had executed on April 25previous. In November, 1929, he prosecuted the first defendant forcheating him by inducing him to buy lot 2 when he had previously soldit on D 1 to the sixth defendant. He said he came to know of D 1 whenhe sought to mortgage lot 2. The first defendant said that all he intendedto sell on D 3 was lot 2a, but that the plaintiff induced him to includelot 2. The first defendant w;as acquitted. In the face of all thesecircumstances the plaintiff obtained judgment" and issued execution onNovember 24, 1931—we do not know when he obtained judgment—and proceeded to buy at the execution sale in May, 1931, the property
» (1930) 7 Times Law Reports 99.» (1907) 3 Mat. 129.
* (1916) 3 C. W. R. 19.
DRIEBERG J.—Punchi Appu v. Aralis Appu.
which, though his wife was the nominal party, he had previously boughton D 3 in September, 1929, and on which he could not successfully asserttitle against the sixth defendant’s earlier conveyance of April, 1929.The proper course for the plaintiff to have adopted was to have seizedand registered his seizure of lot 2. He should have had the first defend-ant examined under section 219 of the Civil Procedure Code and if hedisclosed other property which was not claimed by others the plaintiffshould have sold it and he would have then known whether lot 2 wasneeded to satisfy his claim. If his claim was still entirely or substantiallyunsatisfied that would show that by the alienation of this land the firstdefendant rendered himself insolvent and it would be an importantcircumstance in deciding whether the transfer should be set aside. Heshould then have brought a Paulian action to have the transfer set asideand thereafter had the land sold in execution. The first defendantsaid that there was a land the half of which he owned was worth Rs. 300and that he owned shares of other lands worth Rs. 200 and Rs. 300.A headman called earlier by the plaintiff said that the first defendant’slands in his division were not worth more than Rs. 100 or Rs. 150. Doesthis refer to all the lands stated by the first defendant ? The truth ofthe first defendant’s statement could have been effectively tested if the'plaintiff had adopted the course I have mentioned. In these proceed-ings with such evidence as there is one can only be led to a conclusionagainsl the first defendant by suspicion and this is not enough.
In my opinion, it has not been proved that there was no considerationfor D 1, that by it the first defendant rendered himself insolvent, and thathe executed it for the purpose of defrauding the plaintiff. The conductof the plaintiff in procuring the deed D 3 in favour of his wife for lot 2when he knew of the previous transfer to the sixth defendant, and in nottaking steps to ascertain what other property the first defendant hadbefore he sold lot 2 in execution, is open to great suspicion and suggeststhat his objective was not so much to obtain satisfaction of his claimas to acquire this lot which adjoined lot 2a in which he had acquired aninterest. I think it is unsafe to hold against the defendants on what ispractically the evidence of the plaintiff alone.
The case against the third defendant also rests only on suspicion.If he was present at the Fiscal’s sale there was no reason why he shouldnot buy the land from the sixth defendant merely because the plaintiffwas selling on his writ property which the first defendant had previouslyparted with. There is no evidence of the third defendant having hadanything to do with the execution of D 1. If the plaintiff had adoptedthe proper course in this matter there would have been a registration ofthe seizure under his writ before the sixth defendant purchased ; purchaseby the sixth defendant thereafter would have been then subject to theplaintiff’s claim. The plaintiff omitted to do what was necessary towarn innocent parties of the danger of a purchase from the first defendantwhile his claim was unsatisfied.,
The judgment is set aside and the plaintiff’s action dismissed. Theplaintiff will pay to the second, third, fourth, fifth, and sixth defendantstheir costs in the District Court and their costs of this appeal.
Macdonell C.J.—I agree.
PUNCHI APPU v. ARALIS APPU et al